McCormick and the Separation of Powers Constraints of Patent Invalidation

By Neal Solomon
October 17, 2017

EDITORIAL NOTE: This article is the fifth installment of an 8-part series exploring the constitutionality of the PTAB under the public rights doctrine. To begin reading from the beginning please see: Patent Review in an Article I Tribunal is Unconstitutional.

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U.S. Capitol from the Supreme Court. CC-SA-2.0.

U.S. Capitol from the Supreme Court. CC-SA-2.0.

Patents have characteristics of a private right. See 35 U.S.C § 261. Once issued by the initial examination agency, a patent endows its owner with an exclusive right for a limited time. The regulatory scheme is only limited to conducting a search of prior relevant inventions and comparing patent claims and a disclosure to the prior art in order to assess novelty and utility. Once granted, however, the patent is considered to be private property with the full protection of the Constitution.

Since patents belong to a class of private property rights, the adjudication of patent validity, infringement and damages have been allocated to Article III courts under common law. Even where courts of equity determine patent damages, the adjudication of patents, as private rights between private parties, has traditionally been performed in federal district courts by judges and, when appropriate, juries.

The source of the private property right in a patent lies in the Constitution itself, not in any supposed statutory scheme. To suggest otherwise is to politicize the patent right and leave it susceptible and vulnerable to commercial or ideological interests.

Patents are Private Property Rights Deriving From the IP Clause

The argument that patents are private rights is supported by over two centuries of jurisprudence. Patent rights derive from Article I, section 8, clause 8 of the U.S. Constitution, which empowers Congress to promote progress by creating laws involving patents and copyrights. The patent bargain exchanges disclosure of new and useful inventions for a limited term exclusive right. The public benefits from the patent bargain in two ways. First, the disclosure enables others to build on the invention. Second, after a twenty year period, the public receives the benefits of the invention for free as the rights flow to the public domain. The patent bargain stimulates incentives to invent, to invest in innovation and to take ex ante risks.

Historically, patent rights have been conceived as private property rights. Note, for example, that 35 U.S.C. § 261 specifies that patents have “attributes of personal property.” Private property rights, including patent rights, have been adjudicated in common law since 1789. Though Congress may legislate patent statutes, only when such statutes promote progress, the origin of the patent right undoubtedly lies in the U.S. Constitution.

The main role for an executive agency to administer patents is to supply an initial examination in order to ascertain the originality and usefulness of an invention. Once issued, however, the patent grant has attributes of private property. This property right is important in order to supply a mechanism for trading patent rights. By embedding a patent with a property right, an inventor is rewarded for creating new inventions and investors are supplied with an incentive to invest in new technology. See Mossoff, A., Patents as Constitutional Private Property: The Historical Protection of Patents Under the Takings Clause, Boston U. L. Rev., Vol. 87, 689, 2007.

Patent Validity Review Requires Article III Court Independence

In McCormick (1898), the Court held that the validity of a patent could not be reviewed by the agency that originally granted the patent. Rather, only an Article III court could review the patent for invalidity. According to the Court,

“It has been settled by repeated decisions of this Court that when a patent has received the signature of the Secretary of the Interior, countersigned by the Commissioner of Patents, and has had affixed to it the seal of the Patent Office, it has passed beyond the control and jurisdiction of that office, and is not subject to be revoked or cancelled by the President or any other officer of the government. United States v. Schurz, 102 U. S. 378; United States v. Am. Bell Telephone Co., 128 U.S. 315, 128 U. S. 363. It has become the property of the patentee, and as such is entitled to the same legal protection as other property.” (169 U.S. 606)

The logic of McCormick lies in the primacy of private property rights. For examples, see McClurg v. Kingsland (1843); U.S. v. Burns (1870), Consolidated Fruit Jar Co. v. Wright 94 U.S. 92 (1876); Cammeyer v. Newton 94 U.S. 225 (1876); McKeever v. U.S. (1878); U.S. v. Schurz 102 U.S. 378 (1880); James v. Campbell 104 U.S. 356 (1882); U.S. v. Palmer 128 U.S. 262 (1888); U.S. v. Am Bel Tel Co. 128 U.S. 135 (1888); Michigan Land and Lumber Co. v. Rust 168 U.S. 589 (1897); College Savings Bank v. Fla Prepaid (527 U.S. 666 (1999); Festo v. Shoketsu 535 U.S. 722 (2001); and Horne v. Department of Agriculture 135 S.Ct. 2419 (2015). Only an Article III court has the independence to apply due process principles to fairly adjudicate patent validity determinations, and, in many cases, a jury may act as a finder of fact in such invalidity determinations. “The only authority competent to set a patent aside, or to annul it, or to correct it for any reason whatever, is vested in the courts of the United States, and not in the department which issued the patent.” (169 U.S. 609) If the United States government wishes to challenge a patent, according to McCormick, it may do so only in an Article III court; however, the government may only challenge a patent when the government itself has a “direct interest.”

The patent examiner in a reissue proceeding in the Patent Office may offer his “personal opinion” about the validity analysis, but “however persuasive it might be, did not oust the jurisdiction of any court to which the owner might apply for an adjudication of his rights . . .” (169 U.S. 611-612). The Court reasoned:

“ . . . to attempt to cancel a patent upon an application for reissue when the first patent is considered invalid by the examiner would be to deprive the applicant of his property without due process of law, and would be in fact an invasion of the judicial branch of the government by the executive.

Our conclusion upon the whole case is that, upon the issue of the original patent, the Patent Office had no power to revoke, cancel, or annul it. It had lost jurisdiction over it, and did not regain such jurisdiction by the application for a reissue.” (169 U.S. 612)

The McCormick Court relied on a long list of cases to justify its view that once issued, a patent cannot be reviewed by an Article I agency. See U.S. v. Schurz 102 U.S. 378; Seymour v. Osborne 11 Wall. 516; Cammeyer v. Newton 94 U.S. 225; U.S. v. Palmer 128 U.S. 262; James v. Campbell 104 U.S. 356; Lumber Co. v. Rust 168 U.S. 589; U.S. v. Stone 2 Wall. 525; Mining Co. v. Campbell 135 U.S. 286; Noble v. Railroad Co. 147 U.S. 165; and Allen v. Culp 166 U.S. 501. The main justification for maintenance of a private right in a patent and the proposition that title is maintained by the original patent holder derives from Moore v. Robbins. The Moore Court noted a parallel logic showing that an administrative agency lacks power after an initial grant of title. Referring to a land patent grant, the Court observed:

“But in all this there is no place for the further control of the Executive Department over the title. The functions of that department necessarily cease when the title has passed from the government. And the title does so pass in every instance where, under the decisions of the officers having authority in the matter, a conveyance, generally called a patent, has been signed by the President, and sealed, and delivered to and accepted by the grantee. It is a matter of course that, after this is done, neither the secretary nor any other executive officer can entertain an appeal. He is absolutely without authority. If this were not so, the titles derived from the United States, instead of being the safe and assured evidence of ownership which they are generally supposed to be, would be always subject to the fluctuating, and in many cases unreliable, action of the land-office. No man could buy of the grantee with safety, because he could only convey subject to the right of the officers of the government to annul his title.

If such a power exists, when does it cease? There is no statute of limitations against the government; and if this right to reconsider and annul a patent after it has once become perfect exists in the Executive Department, it can be exercised at any time, however remote. It is needless to pursue the subject further. The existence of any such power in the Land Department is utterly inconsistent with the universal principle on which the right of private property is founded.” [emphasis added] (96 U.S. 530 (1877))

Placing patent validity review in an Article I agency or tribunal elicits the opportunity for perpetual harassment and removal of the certainty of patent rights because anyone can attack the patent at any time. By placing patent validity disputes in Article III courts, this harassment is minimized, proceedings subjected to due process, and the patent grant is secure from harassment.

Article III Court Independence as Crucial to Constitutionality of Patent Validity Review

The constitutionality of patent validity review is an issue involving the separation of powers. While the PTO may issue patents after fulfilling its duty of examining patent applications, once issued the patents are passed beyond the boundaries of the original executive agency that confers the patents. Two centuries of jurisprudence clearly show that patents become private property rights after they are granted. This view is reinforced by the notion that patent disputes involve private parties, typically a patent holder and a corporation that infringes the claims of a patent. Like any dispute involving a property right between private parties, the matter is adjudicated in Article III courts by a judge and jury.

In many cases, patent validity is viewed as a counter-claim to a patent infringement action enforcing a patent right. For instance, an action for declaratory judgment may be made in a court challenging validity of a patent. See MedImmune v. Genentech (549 U.S. 118 (2007)).

According to 35 U.S.C. § 282, patents are presumed to be valid. This presumption ties into the property right embedded in a patent. In order to overcome the presumption of validity in a patent, Article III courts require a high evidentiary burden to be satisfied, viz., the clear and convincing standard. Cf. Microsoft Corp. v. i4i Limited Partnership 464 U.S. 91 (2011). The presumption of validity also carries with it a requirement for due process, a key feature of which an independent judiciary and jury system are uniquely qualified to supply. See Solomon, N., A Review of Patent Validity Jurisprudence, SSRN, 2010 and Kieff, F., The Case for Preferring Patent-Validity Litigation Over Second-Window Review and Gold Plated Patents: When One Size Doesn’t Fit All, How Could Two Do the Trick?, U. of Penn. L. Rev., Vol 157: 1937, 2009.

In contrast to the federal district courts, there are inconsistencies in the procedures applied to review patent validity in the PTO, with the PTAB resulting in a 76% chance of cancellation of challenged claims once an IPR is instituted versus a 28 percent chance of claim cancellation in the federal courts. In other words, using different procedures of review, IPRs have a 2.75 times greater chance of invalidating at least one claim in a patent over the federal courts. These inconsistencies reflect a blatant disregard for due process in the PTAB.

The Problem of Patent Validity Finality in Different Fora

The existence of an Article I tribunal determining patent validity in competition with Article III federal district courts presents a conflict that sometimes leads to absurd conclusions.

The high PTAB invalidation rates raise a critical question involving the separation of powers regarding patent validity review and finality. Which forum, and under what rules of evidence or procedures has the ultimate priority, the PTAB or the courts? In many cases, a case is resolved in the federal district courts only to be reopened and invalidated in the PTAB. This disparity of review results under different fora and rules presents a legitimate constitutional issue. The inconsistencies in patent validity review results in the different fora, governed by application of different rules, create a problem of finality.

The Federal Circuit has perpetuated the problems of finality by providing PTAB, and not the federal courts, with the last word on the issue of patent validity. For example, cases that have been litigated to judgment by a jury that resulted in a finding of a valid patent may be overruled by PTAB by applying the same prior art. In other cases, the PTAB overrules even the CAFC itself. The narrow view of “finality” allows PTAB decisions to overrule the federal district court determinations of validity. Without a clear path of priority or finality for the different fora, issue preclusion is confusing at best. Nevertheless, the challenge of determining finality in different fora ignores the separation of powers issues in which the federal district courts have a clear priority over an administration agency. See Ethicon, Inc. v. Quigg 849 F.2d 1422 (Fed. Cir. 1989) (Newman dissenting); In re: Baxter 678 F.3d 1357 (Fed. Cir. 2012) (“[a] patent that has been adjudicated to be valid cannot be invalidated by administrative action, any more than a patent adjudicated to be invalid can be restored to life by administrative action.” (Newman dissent)); Fresenius USA Inc. v. Baxter International Inc. 721 F.3d 1330 (Fed. Cir. 2013); Versata Software v. SAP America Inc. 717 F.3d 1255 (Fed. Cir. 2015); ePlus Inc. v. Lawson Software Inc. 789 F.3d 1349 (Fed. Cir. 2015); Tinnus Enterprises LLC v. Telebrands Corp. 846 F.3d 1190 (Fed. Cir. 2017); and Ultratec Inc. v. CaptionCall, LLC (Fed. Cir. 2017).

For an instance of conflict between an Article III court and PTAB over patent validity determination finality, note the Seventh Amendment finality clause, which reads: “and no fact tried by a jury, shall be otherwise reexamined in any court of the united states . . .” Therefore, clearly a federal court and jury should have a final judgment on validity.

A private rights view of patent validity review in federal courts in common law with a jury right has been the traditional position on providing Article III courts with the priority on the issue of finality. The notion that PTAB can overrule the courts, or even the CAFC, is absurd conclusion based on poor logic and procedures..

The application of the traditional approach to the public rights doctrine would easily solve this problem as well by maintaining that Article III courts have the priority over the Article I executive agency or tribunal. The existence of these conflicts clearly illustrates the very low standards for patent validity review in the PTAB, which generally omits anything resembling due process, that enable easier cancellation of patent claims than in the courts.

Due process aspects provide the determining factor for the constitutionality of patent validity review in different fora.

Adjudication of Private Property Rights in Federal Courts in Common Law Involves a Seventh Amendment Jury Trial Right

The origins of the American judiciary and the jury system lie in the Declaration of Independence. Among the claims that were intolerable in the rule of an English monarch:

“He has obstructed the Administration of Justice, by refusing to Assent to Laws for establishing Judiciary powers. . . .

“He has made Judges dependent on his Will alone, for the tenure of their offices, and the amount and payment of their salaries. . . .

“For depriving us in many cases, of the benefits of Trial by Jury.”

These issues were addressed in the Constitution in Article III by establishment of independent courts and in the Seventh Amendment, which reads:

“In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise reexamined in any court of the United States, than according to the rules of the common law.”

These essential constitutional elements comprise the vital constraints on government power without which the U.S. form of government would be susceptible to abusive executive power or commercial influences. The independence of the judiciary ensures that private rights and liberties of citizens would be unperturbed by the overreaching of government actions. See Keane, M., Patent Reexamination and the Seventh Amendment, George Washington L. Rev., Vol. 77, 1101, 2009 and Daily, J. and F. Kieff, Benefits of Patent Jury Trials for Commercializing Innovation, Geo. Mason L. Rev., Vol. 21:4, 865, 2014.

In 1995, the Federal Circuit addressed the issue of a jury trial right for patent validity review in In re Lockwood (50 F.3d 966 (Fed. Cir. 1995)), suggesting that a Seventh Amendment right has priority under common law. The Federal Circuit opinion was, however, vacated by the Supreme Court for procedural reasons. The Lockwood court followed Supreme Court precedent in Tull v. United States (481 U.S. 412 (1987)), ruling that a right to a jury trial is a priority in common law matters.

Ascertaining the validity of patents in the courts involves both legal and factual analyses. Note that in Markman v. Westview Instruments (517 U.S. 370 (1996)) the Court ruled that claim interpretation is a legal matter for judges, not juries. However, in many cases, the legal and factual issues of determining patent validity reviews are integrated. At a minimum, an Article I tribunal encroaches on the factual determination of patent validity by juries in comparing patent claims to prior art. However, since claim interpretation supplies an initial component of patent validity review, an Article I tribunal also inappropriately supplants the judge’s authority.

The central forum for adjudication of patent rights, including patent validity review, has been, for over two hundred years, the federal courts. The introduction of the public rights doctrine – originally limited to matters involving the federal government as a sovereign power – remains an exception to the rule that private rights, including patent property rights between private parties, are adjudicated in Article III courts.

Even within the public rights doctrine, the issue of a Seventh Amendment jury right is prominent. Note the Court’s analyses in determining the constraints of the Seventh Amendment within the public rights exception in Bakelite, Atlas Roofing and Granfinanciera. In these cases, the Court was concerned with due process issues enabling an executive agency or tribunal to adjudicate issues involving public rights within an agency’s purview that may justify removal of the dispute from an Article III court and deprivation of a jury right. While an agency may perform fact finding in a matter involving a statutorily conjured public right, and therefore remove a jury from the fact finding expedition, the constraints of consent, due process and Article III court review apply.

The issue of the forum for adjudication of patent validity was uncontroversial until a lobby consisting of a cartel of technology companies convinced Congress with a false narrative of poor patent quality that the U.S. should institute a novel experiment to justify review of patent validity in an Article I tribunal. The introduction of this intermediary institution to review patent validity represents an assault on the bedrock of the primary economic system that sustained the U.S. since its founding. In Oil States, the Court should without further delay make clear that Congress cannot make a statute that impedes progress in contravention of the Constitution because IPRs do not satisfy any reasonable test of due process and fail to satisfy the minimum standards of the public rights doctrine.

CLICK to CONTINUE READING… Up next is discussion of how there is no possible interpretation of PTAB procedures under which basic due process rights are applied.

Other series articles:

The Author

Neal Solomon

Neal Solomon is CEO of Advanced System Technologies Inc. A prolific inventor of technologies involving semiconductors, communications, data management, imaging, robotics and healthcare, he holds degrees from Reed College and the University of Chicago.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

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There are currently 6 Comments comments. Join the discussion.

  1. Edward Heller October 17, 2017 4:00 pm

    If “patents” were created whole cloth from a general Article I power, e.g., the commerce clause, Congress could make patents be anything at all, from an inventor’s certificate, to a cash bonus, to a revocable privilege. But Congress can only create patents for invention based on the Patents Clause, which guarantees an inventor exclusive rights for limited times as that is the only power Congress has wrt to securing inventors their “rights” in their discoveries. The securing part is consistent only with the idea of some unsecured, but preexisting, right in the inventor. As noted by the Supreme Court in US v. American Bell (1898), a patent takes nothing that is the government’s to begin with and gives it solely to the one. Rather, a patent publishes the invention of the one to the world conferring on the public a great benefit; but only in exchange for exclusive rights for a limited time.

    Under the constitutional grant of power, patents cannot be made revocable privileges without discarding entirely the rights of the inventors that were taken by the publication of their inventions. The bargain creates vested property rights in the patent. Now, to be sure, the Supreme Court has ruled that not all property rights must be adjudicated in Article III courts. What must be adjudicated there are rights that were litigated in the English courts of Westminster (law, equity, Admiralty) prior to 1789, and patent rights were (law for damages and validity, equity for injunctive relief). Moreover, not every property validity trial must be tried to a jury — just those that were so tried prior to 1792. Patent validity was tried only to juries prior to 1792.

    It is this final link to the procedures in England that make the case against IPR. It is necessary to recognize that establishing patents as property rights is not sufficient because the Supreme Court is never going to rule that all property cases must be tried in the courts. For example, professors have property rights in their jobs, but the courts only require due process be accorded when they are fired for cause, not that the matter be tried in the courts. See, e.g., Federal Education Assn. v. Defense, No. 2015-3173, involving the issue of due process in the firing of a professor, that was take en banc by the Federal Circuit on October 13.

  2. Anon October 17, 2017 7:11 pm

    Mr. Heller,

    Your argument on the right of a patent qua patent is well developed.

    But what then if what the “right” being discussed in the IPR context is not that patent right, but instead is a new right, a right of challenge, a public right, and one created different than (albeit similar to) scire facias, and one that Congress has decreed because the existing remedies at law were deemed inadequate by Congress and thus have been supplemented (and not replaced)…

    Yes, this is a continuation of our dialogue on a thread now “below the fold” (to borrow an old newspaper term).

    If we take now as given my position – even if only just for arguments sake – what next?

    Particularly, your well developed argument becomes superfluous and a different argument must rise.

    I remain somewhat perplexed by your resistance to fully discuss that different argument.

  3. Edward Heller October 17, 2017 8:38 pm

    anon, it is the courts that finally decide whether the remedy at law is adequate, not congress. Otherwise congress could sweep away constitutional rights by declaration. Stern dealt directly with this when it said that congress could not override constitutional rights by declaring something to be a public right.

  4. Anon October 17, 2017 9:46 pm

    Mr. Heller,

    This is not a situation though that Congress is declaring something (previously not a public right) to be a public right.

    Further, how would the courts get into the action of declaring a remedy at law to be inadequate?

    Does this not have to get TO the courts in some manner? Is not this manner of the Legislature so declaring inadequacy a “proper” path? May the courts (now that such a path has been taken) merely agree with Congress and thus make happen the very situation as I have outlined it?

    I think that being prepared for some serious thought as to a position that entirely pre-empts your developed argument is not only prudent, but necessary.

  5. Edward Heller October 18, 2017 7:38 am

    Well anon, you raise a good question. I was thinking about Small Claims Court which require a party to appear without counsel and with no right to a trial by jury. The claims have to be small.

    But patents are not small claims. The value of a patent can be, and most often is, in the millions if not in the tens of millions. One does not lightly strip one of constitutional rights where the amount in controversy is so great.

    The Supreme Court in ex parte Wood & Brundage made note of the fact that patents were great value in determining that patent owners had a right to a jury trial before their patents might be revoked. That the precedent has not been overturned and should influence the court in its decision in Oil States.

  6. Anon October 18, 2017 9:58 am

    Mr. Heller,

    I completely agree that other considerations are (and should be) in play.

    Which is rather the point that I stress – even as I provide a foundation for some other right than a patent right being a “focus” of the IPR court battles.

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